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Can you count on higher CD rates from one institution to another?
Old 12-26-2013, 09:13 AM   #1
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Can you count on higher CD rates from one institution to another?

It was convenient having all our funds at Vanguard, but we (reluctantly) moved cash from VMMXX to Ally and Treasury Direct iBonds more than a year ago. I am now tempted to put some of our fixed income allocation into CD's but Vanguard & Ally's CD rates are awful compared to PenFed's 3% 5yr CDs (I realize that rate may end this month).

So are there firms that offer higher CD rates fairly consistently, like PenFed?

Bottom line, I'd like to avoid spreading money all over the place, especially only to find that I'm chasing rates from one place to the next.

[I can't understand how CD rates can vary so wildly from one institution to another. I've read it's simply a function of supply & demands between loan activity and CDs, the differences in rates are dramatic, but that's another topic.]
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Old 12-26-2013, 10:49 AM   #2
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You might want to consider a brokered CD. Fidelity has a nice selection of new issues at https://fixedincome.fidelity.com/ftg...isplay?name=CD

Most, thought not all are FDIC insured. Brokered CDs have some limitations compared to a bank/credit union issued CD - the purchase must in multiple's of $1000 and interest is not compounded. Also it is not easy to close a brokered CD early - you'll need to sell it at a loss on the secondary market (also available thru Fidelity).

However there are some good deals compared to bonds. Discover Bank is offering a 10 year CD at 3.20% APR thru Fidelity.
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Old 12-26-2013, 11:01 AM   #3
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While it takes a little more time to manage, I like the idea of spreading things out over multiple institutions.. especially if you're hitting insurance limits.
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Old 12-26-2013, 11:41 AM   #4
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You might want to consider a brokered CD. Fidelity has a nice selection of new issues at https://fixedincome.fidelity.com/ftg...isplay?name=CD

Most, thought not all are FDIC insured. Brokered CDs have some limitations compared to a bank/credit union issued CD - the purchase must in multiple's of $1000 and interest is not compounded. Also it is not easy to close a brokered CD early - you'll need to sell it at a loss on the secondary market (also available thru Fidelity).

However there are some good deals compared to bonds. Discover Bank is offering a 10 year CD at 3.20% APR thru Fidelity.
While this seems like a good alternative, I find that whenever I look at brokered CDs on the open market, they rarely pay more than about .5% higher than the best rate on bankrate.com, and you inherit the interest rate sensitivity that you get with bond funds. A traditional CD guarantees your principal, with a worse case loss of typically one year of interest for early withdrawal. It would seem to me that you should gain a lot more than .5% to give up this significant benefit. Maybe someone who is more educated than I am on brokerage CDs can help me to understand what I'm missing here.
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Old 12-26-2013, 11:53 AM   #5
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If you check Discover.com, you'll find they are only offering 1.90% APY for a 10 year CD. 3.20% thru Fidelity is much better. I also like the fact the interest is automatically deposited in a brokerage account every 6 months.
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Old 12-26-2013, 12:00 PM   #6
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I like the idea of one-stop shopping as well and until recently, other than a Discover Bank online savings account that is our liquidity, I had everything consolidated at Vanguard (other than a DC plan from my former employer and our HSAs - but those are in Vanguard funds).

But I found the PenFed 3% CD too alluring and move some of my tIRA money over there to get the 3%.

I don't know of any one institution that has consistently high rates.
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Old 12-26-2013, 12:14 PM   #7
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I've been buying CDs at Pen Fed for about the last 7 or 8 years. They don't always have the greatest rates, but they do so often enough that I have not had much trouble rolling money over at opportune times. Since they pay up especially for longer term money, you only have to hit their window of above market offered yields once in a while.
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Old 12-26-2013, 02:46 PM   #8
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Just signed up and called PenFed. They said rates will be the same in January.
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Old 12-26-2013, 03:46 PM   #9
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I've been monitoring threads here and at Bogleheads and people calling have gotten different responses on how long it will last. The most reasonable I've seen is that it is scheduled to last through December and could be available in January. I saw a post on Bogleheads that someone just said that rates in January could be higher or lower. And it is the rate that exists when the money is transferred to them. So I've joined so we could do something if we want but will wait to January 1 to see what the rates are then.
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Old 12-26-2013, 03:52 PM   #10
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So I've joined so we could do something if we want but will wait to January 1 to see what the rates are then.
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Old 12-26-2013, 04:20 PM   #11
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I'm about maxed out at Penfed. The rest of my cd's are through Fidelity but rarely see specials that comes close to PF. Like you, I'm not too wild about opening up multiple bank accts at various websites. I might open up one more if their rates are good enough to justify it.
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Old 12-26-2013, 04:29 PM   #12
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As far as cash is concerned, I've been unable to avoid having it spread around between American Express Bank, IBonds, PenFed CDs, and a bit in the Fidelity brokerage.

We will be buying more IBonds this January - the new 1.38% rate which includes 0.2% fixed rate, up from the 0% they have been for the past several years. We consider it equivalent to a 1 year CD.
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Old 12-26-2013, 04:32 PM   #13
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When I started buying CDs in 2010, Penfed and USAA offered similar rates and I spread my money between the two. Three years later, USAA's CD offering is pitiful compared to PenFed's and I am moving the money from my maturing USAA CDs elsewhere. So I am resigned to the fact that I may have to shop around over time to find the best CD rates.
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Old 12-26-2013, 04:52 PM   #14
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I understand the reluctance to spread the money around. There are definite benefits to consolidation. I almost put money into Ally Bank, but I procrastinated long enough that Pen Fed came out with there not quite annual end of year special.

On the other hand my mom has $100,000 sitting in Vanguard short term bond fund and I know I should set up a Pen Fed account but the hassles are preventing it.
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Old 12-26-2013, 04:58 PM   #15
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I understand the reluctance to spread the money around. There are definite benefits to consolidation. I almost put money into Ally Bank, but I procrastinated long enough that Pen Fed came out with there not quite annual end of year special.

On the other hand my mom has $100,000 sitting in Vanguard short term bond fund and I know I should set up a Pen Fed account but the hassles are preventing it.
I just checked and unless I'm missing something, PenFed's savings rates (0.05-0.15%) are awful compared to Ally (0.85%), whereas PenFed's CD rates (3% 5yr) are far better than Ally (1.6% 5yr). WOW! So I'm best holding cash (liquid) at Ally and buying CDs from PenFed, and avoiding vice versa. They sure make it difficult...unless I'm missing something.
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Old 12-26-2013, 06:36 PM   #16
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I just checked and unless I'm missing something, PenFed's savings rates (0.05-0.15%) are awful compared to Ally (0.85%), whereas PenFed's CD rates (3% 5yr) are far better than Ally (1.6% 5yr). WOW! So I'm best holding cash (liquid) at Ally and buying CDs from PenFed, and avoiding vice versa. They sure make it difficult...unless I'm missing something.
I don't think you're missing anything. It's a pain. An alternative to Ally's rate (.85) is GE Capital Bank (.90), but thier 5yr is only 2.01.
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